(c) WSJ June 27, 2006
Intel Corp., facing tough competition in its core business, is selling its division that makes processors for handheld devices in a $600 million deal with Marvell Technology Group Ltd.

The business being sold was part of a largely unsuccessful plan by the chip maker to diversify away from the computer industry, which was accompanied by more than $10 billion in acquisitions during the Internet boom.

Marvell, of Santa Clara, Calif., will be acquiring the business that makes processors based on Intel's XScale technology, which has produced the chips used in the popular BlackBerry and Treo handheld devices. The unit employs 1,400 people, and Marvell said it expects to retain the "vast majority" of them.

Intel, which is also based in Santa Clara, is the No. 1 maker of microprocessors, which act as the brains of personal computers and server systems. But the company has been struggling to cope with tough competition from Advanced Micro Devices Inc.

Besides counterattacking with new chips, Intel Chief Executive Paul Otellini vowed in late April to undertake a comprehensive 90-day review of all operations. The goal was to restructure and resize the business to meet expected sales levels and improve profitability at the company, whose gross profit margin was lower than AMD's in the first quarter -- a rare event in the long competition between the chip makers.

Marvell noted that Intel currently expects to receive the $600 million purchase price entirely in cash but it has the option to take up to $100 million of the consideration in Marvell common stock. Marvell also said it may record a charge related to in-process research and development expenses in relation to the deal. Intel plans to provide information regarding the financial impact of the transaction at a later time.